Economy

Thinking one's wealth resides securely in Paper Assets-in-general (or, even more intangibly, in electronic data stored on some remote server) is often unjustified, and, quite risky, as the aforementioned Market Savagings have shown.

Consider first that 'Paper/Electronic Assets' typically have no intrinsic value.

India may create a sovereign fund to help state companies compete for overseas energy assets with rivals from China, a government official said. The oil ministry has formally asked the finance ministry to use a part of the nation’s $254 billion foreign-exchange reserves for the proposed fund, the official said, declining to be identified because a decision hasn’t been reached.

“Such a fund would be very, very welcome if we are to compete with the Chinese,” R.S. Sharma, chairman and managing director of state-run Oil & Natural Gas Corp., India’s biggest energy explorer, said by telephone from New Delhi.

Otmar Issing, the ECB's former chief economist, told an Open Europe forum in London that policymakers are entering treacherous waters. "Nobody can be sure that we have a self-sustaining recovery. The challenges facing the ECB are tremendous," he said.

"Money multipliers have collapsed everywhere. What M3 is telling us is that confidence is missing. I don't see any way to stabilise M3 in such circumstances," he said.

When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster. Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

In our illustrious history, we humans have tried everything from salt to sardines as a medium of exchange, but nothing has seemed to work as well as gold and silver. A person bringing a relatively illiquid item to market could swap it for gold or silver, secure in the knowledge that the metal would retain its value for as long as he chose to hold it and would be accepted as payment for anything he wanted when he chose to spend it.

I can’t believe the number of frightening retirement stories I’ve seen in just the last week. They suggest that the vast majority of our country’s citizens are completely unprepared for life after work. They point to a governmental backup system that is getting ever more desperate. And they suggest that other traditional sources of retirement income — such as corporate pensions — are in grave danger of imploding.

In the wake of the report’s release, major Wall Street firms such as Goldman Sachs and JPMorgan Chase have expressed shock over the Lehman revelations and averred that they never employed the accounting dodges used by their former competitor. One is reminded of the film Casablanca, in which Captain Renault declares his “shock” at discovering gambling in Rick’s casino.

What will the politicians do when they find interest payments swallowing the budget, leaving them less and less money to shower on political supporters? They might resort to higher taxes, which would further dampen economic activity. They might get the Federal Reserve to monetize the debt through inflation; but that would wreak economic havoc. Politicians aren’t likely to cut spending because it would jeopardize their careers. At that point, the government might default on its debts, a step that has much to recommend it.

To achieve high growth, China kept its currency, the renminbi, at artificially low levels against the dollar. This helped already cheap Chinese-made goods become even cheaper. China turned into a significant exporter to the developed economies.

Normally, if free-market economic forces were at work, the renminbi would have appreciated and the US dollar would have declined. However, had China let this occur, demand for its products would have declined, and its economy wouldn’t have grown at roughly 10 percent a year, which it did during the past decade.

The owner of this property stopped making payments sometime in late 2006. It has been over three years since this owner stopped paying, and she is still listed as the property owner, so one can assume she still occupies the property.

In a news release, Walgreens said its decision to not take new Medicaid patients stemmed from a "continued reduction in reimbursement" under the state's Medicaid program, which reimburses it at less than the break-even point for 95 percent of brand-name medications dispensed to Medicaid patents.

Don’t you think a high deficit was justified last year when the government had to spend and help the economy revive?

No. They are just trying to push the problems out into the future rather than solving the underlying problems. Do you really think the solution for a problem of too much debt and too much consumption is more debt and more consumption?

Energy

While water and power generation projects are a top priority for the Saudi government, the utilities sector has suffered from insufficient investments by the public and private sectors in the past decade. This will need to be rectified in the coming years simply to complement domestic demand for utilities growing at a rate of around 8 percent per year.

Dargay and Gately base their logic on the observation that the demand for oil no longer appears to respond to price. While price increases in the 1970s hammered worldwide demand for the fuel, the heftier oil prices we’ve witnessed over the past decade had no such effect. Instead, worldwide demand for oil increased by 4% during that time.

As a ballpark figure, roughly 70% of Mexico’s proven reserves have been consumed. So I think there is an awareness at Pemex that the future is about secondary oil recovery, enhanced oil recovery, and about finding more reserves, which is easier said than done. And also, peak water is an issue for Mexico going forward, but it’s an area in which we have no experience. And so it will be hard to do that unless the ways of working in Mexico are changed quite substantially which is political out of bounds right now.

Environment

Food reserves are now at 20 year lows. Rising emerging market standards of living are consuming more and better food, with Chinese pork demand rising 45% from 1993 to 2005. The problem is that meat is an incredibly inefficient calorie transmission mechanism, creating demand for five times more grain than just eating the grain alone. To produce one pound of beef, you need 16 pounds of grain and over 2,000 gallons of water. I won’t even mention the strain the politically inspired ethanol and biofuel programs have placed on the food supply.

The city's Board of Health decided Tuesday to allow beekeeping in the city after a long ban. Some New Yorkers have secretly tended beehives on rooftops and in backyard gardens for years in defiance of city regulations.

10 Comments

"The massive amount of borrowing by local government has boosted China's total domestic and foreign government debt from 26 percent to 43 percent of national GDP, triggering worries that if a fraction of the borrowing turns sour, banks will be saddled with bad loans. "

"Europe faces a commercial property debt timebomb with almost €1 trillion (£896bn) outstanding from the sector and a quarter of that potentially distressed. "

"According to the property agent, €207bn of the debt is secured at high loan-to-value ratios on poor quality real estate, and is therefore most at risk of not being repaid. Of this, €89bn, or 43pc, is from the UK, and €69bn from Germany.

Also, the debt is maturing at a rate of €155bn a year, meaning almost half will have matured by the end of 2012."

"Pension Pressure - As the burden of ever-increasing pension costs rests heavy on state and beach cities’ coffers, one question is on everyone’s minds — how will we pay for it? "

"The cost of state employee pensions grew by 2,000 percent in the last 10 years, while revenues increased by only 24 percent, Gov. Arnold Schwarzenegger said in his State of the State speech in January.

“The pension fund will not have enough money to cover this amount, so the state — that means the taxpayer — has to come up with the rest of the money,” he warned. “We are about to get run over by a locomotive. We can see the lights coming at us.” "

"Cities brace for impact

Manhattan Beach

Manhattan Beach contributed $5.1 million of its $50 million budget to CalPERS in 2009-10. Next year, the city will likely have to contribute an additional $1 million, while also battling a $2.5 million general fund deficit.

“The stuff hits the fan next year,” Moe said. “(One million dollars) is a huge budget hit for us,” he said."

"WASHINGTON -(Dow Jones)- Bailouts provided to American International Group Inc. (AIG) and U.S. auto makers General Motors Co. and Chrysler LLC will ultimately cost U.S. taxpayers $70 billion, the Congressional Budget Office said Wednesday.

The aid to troubled insurer AIG will cost $36 billion, while public funds provided to GM and Chrysler will cost taxpayers $34 billion, the non-partisan agency said in an updated report on the Treasury's rescue programs.

The total public costs of the programs will amount to $109 billion over the next decade, the CBO said, the same figure it used in its update of the federal government's baseline two weeks ago."

"ALBANY — New York will end the fiscal year on March 31 with at least $2 billion less in cash on hand than originally projected, the state’s comptroller said Wednesday, burdening lawmakers with another headache and making the prospect of achieving a budget agreement before the next fiscal year begins even more dim.

The estimate by the state comptroller, Thomas P. DiNapoli, adds half a billion dollars to Gov. David A. Paterson’s own projection for the current shortfall, issued a little over a month ago. Mr. DiNapoli said the state could no longer count on two large infusions of cash that were expected by the end of the month: a $300 million fee from the winning bidder on the Aqueduct video-lottery franchise and $200 million from the coffers of the Battery Park City Authority. "

"NEW YORK (Reuters) - New York should avoid borrowing as a way to plug the state's deficit because the state already has too much debt, the comptroller said on Wednesday, as he sounded the alarm on talks in Albany already under way on more borrowing.

"More borrowing would become part of the problem, not the solution," state Comptroller Thomas DiNapoli said in a statement."

"Lieutenant Governor Richard Ravitch said earlier this month that the state could use short-term borrowing of about $2 billion a year to help close a five-year deficit that is expected to total $60 billion.

Other states that have used deficit borrowing to plug budget holes include Illinois, which in January sold $3.46 billion of taxable five-year bonds to make a fiscal 2010 payment to state pension funds.

Detroit in March sold nearly $250 million of fiscal stabilization bonds, and Ohio's two-year budget relied on $736 million in cash-flow relief produced by a series of recent restructurings of state debt.

A bill currently in the Massachusetts Legislature would allow the cash-strapped city of Lawrence to issue up to $35 million of debt with state oversight to deal with its deficit."

"(Reuters) - Greece raised the stakes on Thursday in its quest for EU help to tackle its debt crisis, warning it cannot achieve promised deficit cuts if its borrowing costs remain high and might have to call in the IMF."

"The premium investors charge for holding Greek debt rather than benchmark German bonds rose to about 310 basis points, meaning Athens would have to pay well over 6 percent to borrow on capital markets, by far the highest yield in the euro zone.

Economists say such rates are unsustainable in a year when Greece needs to borrow some 53 billion euros ($72.4 billion), 20 billion of it in refinancing between April 20 and end May."

The Kansas City, Mo., School District is closing nearly half its 61 schools, with almost 300 teachers among those losing their jobs once 29 campuses go dark.

The Montgomery, Ala., Public School Board voted last week to lay off more than 600 employees, including 415 teachers, in what it said was just the first phase of staff reductions.

In the northwest suburbs of Chicago, the Illinois 46th District school board this week approved a proposal to lay off more than 1,000 employees — about 25 percent of the district’s staff — to help make up a projected deficit of $44 million. More than 700 teachers would lose their jobs, including all first-, second- and third-year instructors.

Statewide, Illinois schools face budget cuts as high as 17 percent to make up a $1.3 billion education deficit, Gov. Pat Quinn warned last week.

In Atlanta, Superintendent Beverly L. Hall said this week that after years of cutbacks, her district’s 2010-11 budget will be almost 11 percent below its level of seven years ago.

Calling the impact a “category 5” crisis, Georgia’s state superintendent, Kathy Cox, said, “It’s going to be very tough next year. The stimulus came in and helped, but the cliff is coming." "

"Germany's Chancellor Angela Merkel says she wants the Euro-zone to be able to exclude one of its members in future if that is necessary to avert a crisis. Mrs Merkel told the German Bundestag (parliament) that existing EU rules were not strong enough to deal with the current crisis triggered by Greece.

Exclusion from the 16-nation Euro-zone would be a “last resort”, she said."

Today’s report showed the number of people who’ve used up their traditional benefits and are now collecting extended payments jumped by about 352,800 to 6.04 million in the week ended Feb. 27.

“The labor market is stabilizing,” Federal Reserve policy makers said in their March 16 Federal Open Market Committee statement. At the same time, “employers remain reluctant to add to payrolls,” they said."

"TORONTO, March 17 (Reuters) - Canadian non-financial firms have nearly $75 billion in debt coming due over the next five years, but refunding risks are lower than in the United States, Moody's Investors Service said on Wednesday."

""Still, refunding risk in Canada is far less ominous than in the U.S. over the 2010-2014 period."

Moody's said that in the United States, an "avalanche" of non-financial corporate debt totaling almost $1.4 trillion is set to mature over the next five years."

"Chants of "Strike! Strike! Strike!" rose from the crowd of City of Detroit workers Wednesday as members of the American Federation of State, County and Municipal Employees filled the 13th floor auditorium in the Coleman A. Young Municipal Building to address the City Council.

"We have no choice but to shut the city down this time because we are not going to take these concessions," said Michael Mulholland, AFSCME Local 207 secretary-treasurer, halfway through a public hearing hosted by the City Council's Internal Operations Committee.

Hundreds of the roughly 3,500 AFSCME workers attended the hearing, speaking out against Mayor Dave Bing's proposed 10% salary cut -- which comes in the form of 26 furlough days -- and additional benefit cuts."

"The bill for San Jose to cover current and future retirement promises to its employees keeps getting steeper.

City officials said Wednesday that those costs will rise more than 43 percent in the budget year starting in July, increasing the retirement tab by $60 million.

Officials had earlier estimated that retirement costs — which run $138 million in the current budget year — would rise about $38 million in the new fiscal year to account for market losses. They more recently revised that projected increase to $53 million.

The latest figures are based on actuarial analyses used to set the city's contribution rates to the pension funds. They indicate the total tab for retirement benefits will be $198 million for the 2010-11 budget year."

"The state government will issue about $68 million in IOUs on money it owes Orange County during the next budget year, according to the county’s top budget official, another indication that Sacramento is struggling to fulfill its financial obligations.

The IOUs, or deferrals, will be issued in July and October 2010 and March 2011 and will be for periods of 60 to 90 days, said Frank Kim, county budget director. The 2010-2011 fiscal year runs from July 1 through June 30, 2011.

The upcoming deferrals are for $2 million in July, $49 million in October and $17 million in March 2011.

Kim said he expects Sacramento to pay all the money it owes the county by June 2011."

One consideration missing in the comparison between US and Greek debt is that the focus has been on only public debt. The problem that the US has is that because of the huge private debt load, the ability to carry more debt, public and private is far more limited than Greece.

Furthermore, the liquidation of debt by retirees for expenses and and the drive for rents by other returees is creating a collapse in the value of debt all the while the need for higher returns is collapsing interest rates in government debt.

The cost of private debt is skyrocketing, while the need for safety is dropping interest rates on public debt. The low interest rates encourage public indebtedness which will later turn into massive debts as they get rolled over into much higher interest rates inflating government debt and deficits.

The 90s were about the internet. the 00s were about real estate. The teens will be about debt.

A meltdown there – or even a slowdown – would have severe consequences for the rest of the world.

It will tank the commodity markets. Demand for industrial goods will fall off the cliff. Finally, Chinese appetite for our fine currency will diminish, driving the dollar lower against the renminbiand boosting our interest rates higher. No more 5 percent mortgages and 6 percent car loans.

When will the chinese bubble pop? Can they really keep this up for years to come or are we really down to weeks or months?

"WASHINGTON — In his most detailed examination of the causes of the financial crisis, Alan Greenspan, the former Federal Reserve chairman, acknowledged that the Fed failed to grasp the magnitude of the housing bubble but argued that its policy of low interest rates from 2002 to 2005 did not cause the bubble."

"MONTREAL - Last year's collapse of the North American auto sector caused trade with the U.S. and Mexico to suffer its worst year since the North American Free Trade Agreement went into effect 15 years ago, the U.S. Transportation Department said Thursday.

Although trade ended the year on a good note, it fell by 23.3 per cent overall in 2009 compared with 2008.

That marked the largest annual decrease since NAFTA went into effect in 1994 as the value of products that were shipped by truck, rail and pipeline between Canada, the United States and Mexico dropped to US$637 billion in 2009.

The value of trade decreased by 31.1 per cent during the first six months of the year, and by 14.9 per cent in the second half."

"Next year, the PSERS contribution rate will jump by more than 70 percent, costing Lancaster County school systems — and taxpayers — an extra $7.5 million.

But that's just a ripple compared with the wave that will crash down on school budgets two years later, when the rate is projected to more than triple, rising from 8.22 percent of employees' salaries to 29.22 percent."

"Ask me my three main priorities for government, and I tell you: education, education, education."

And 14 years later those innocent 5- and 6-year olds then just entering their first infant school, having completed the Kafquesque maze of UK Governmental interference right down to class-room level, are now starting university (for many an alternative to guaranteed unemployment),,,how do they make ends meet?

Maybe we could get the Greeks and Icelanders to put on some mega strip show to pay down their debt.

Perhaps staff at the Fed and White House would give us all a twirl to pay down the national debt (12.5 Trillion would make it a long show)....and all those Big Swinging D*#ks on Wall St. will flash their boxers.

'Goldman Sucks' takes on a whole new meaning....oh... but they're in credit.